TRUST A TRUST: Let TJB Help You with Your Estate Planning
Terry Jessop & Bitner Newsletter
Issue 23, July 2015
When contemplating an estate plan some people believe they need a trust without understanding what a trust is. There are living trusts, testamentary trusts, grantor retained annuity trusts, and special needs trusts and even domestic asset protection trusts among many other types of trusts. Some trusts are revocable and some are not. Although they have different names and uses, all trusts have a few things in common. First, they each own at least one asset like a bank account or a home. Second, each trust has a person, called a trustee who manages the asset in the trust. Third, each trust has a designated person, called a beneficiary, who benefits from the trust’s ownership of the asset. The most common trust used in estate planning is the revocable living trust.
A revocable living trust holds a person’s (the trustor’s) assets for the benefit of the trustor during his or her lifetime. The trust can be revoked by the trustor. Any or all of the trust provisions may be changed by the trustor. A revocable living trust is typically set up so that during his lifetime the trustor is also the trustee and the beneficiary of the trust. This allows the trustor to continue to control his assets within the trust almost as if the trust was not there. In fact, because the trustor has control over all the assets and still benefits from them, there is no need to file a separate tax return for the trust until the trustor dies. Once the trustor passes away the trust becomes set in stone and cannot be changed. Then the designated successor trustee steps in to manage and disburse to the beneficiaries the trust’s assets according to the terms of the trust.
IS YOUR ESTATE TRUSTWORTHY?
A trust provides an efficient way of administering your estate to your beneficiaries. There are many reasons to create a revocable living trust. Until a few years ago many trusts were created to help shield estates from taxes. However, the amount that can be passed on without any estate or gift tax has been increased to $5.43 million per individual for 2015 (called the exclusion amount). So now far fewer estates need a trust to help avoid estate taxes. If your estate is larger than that, you should definitely consider creating a trust. In addition, it is now easier for a surviving spouse to take advantage of a deceased spouse’s exclusion amount without a trust. The surviving spouse must file an estate tax return, but will not need a trust to preserve her spouse’s exclusion amount and use it upon her death.
The most common reason to create a trust is to avoid probate. Probate is usually more expensive than creating a trust. If the estate includes real property in multiple states the probate costs are duplicated. But if a trust owned the land there is no need to go through probate to distribute the land to the beneficiaries. Also, probate is a public process. A will must be filed with the court. Some people do not want their disbursement instructions to be public. If a business owner wants to give specific but private instructions on how her business should be passed on, a trust makes more sense. By transferring all property to a revocable living trust during a trustor’s lifetime, the trustor makes it easier for the successor trustee to administer the estate. Upon the trustor’s death a successor trustee has the power and authority to administer the trust estate. It may take weeks for a personal representative to obtain approval from the court to administer the estate according to a will. All a successor trustee needs is the trust document to prove he has authority.
A revocable living trust is a great tool in many estate plans. If you would like to see if a trust would help you in your estate plan, please feel free to contact us. We would be happy to answer your questions about trusts and estate planning.
© Terry Jessop & Bitner July 2015